July 31, 2020
By CardinalStone Research
FBN Holdings Plc (FBNH: TP – N7.47: BUY) result highlights:
- H1’20 earnings surged by 56.3% YoY, supported by a 46.8% jump in non-interest income and a N13.8 billion gain in discontinued operations that was mostly influenced by the sale of the firm’s 65.0% stake in FBN Insurance Ltd
- In Q2’20, however, earnings contracted by 7.5% QoQ to N23.8 billion. Further assessment reveals a much steeper decline in operating performance after adjusting for the N10.5 billion asset disposal gain during the quarter. To this point, earnings from continuing operations plunged 46.0% QoQ, weighed by a 2.2x jump in impairment charges on financial assets and a 39.0% decline in non-interest revenue. These weaknesses are possibly indicative of the weak operating conditions induced by the COVID-19 pandemic.
- Credit-related impairments rose 49.8% QoQ during the quarter to N15.1 billion, reflecting a 100 bps jump in cost of risk to 2.9% in Q2’20. NPL ratio, however, moderated to 8.8% from 9.2% in Q1’20, possibly due to further write-offs and loan restructurings
- Non-interest revenue (NIR) fell 39.0% weighed by an 84.9% decline in total non-fee related NIR
- Elsewhere, net interest income rose 17.9% QoQ aided by lower interest expense (-29.5%). We attribute the moderation in interest expense to the 100 bps cut in MPR on the bank’s huge savings deposit base and the impact of moderating yields
- Also, operating expenses moderated by 5.6% in the quarter, although cost to income ratio inched 110 bps higher due to the weaker operating income (-7.8% QoQ)
- Gross loans to customers contracted by 2.6% while customer deposits improved by 1.9% relative to Q1’20
- Following the divestment from the insurance business, the HoldCo injected tier 1 capital into the commercial bank, leading to a 120 bps increase in CAR to 16.5%.